The growing case for wealth taxation in Europe

There is growing concern about the distribution of wealth in Europe, the erosion of taxes on wealth and wealth transfers over the last few decades, and the increased fiscal needs resulting from multiple international crises. Is it time to tax wealth more?

The top 10%, middle 40%, and bottom 50% of household wealth in the EU from 1995 to 2023 is shown below as reported by the European Commission.

Household wealth in the EU of the top 10%, middle 40% & bottom 50% (%of Total):

Wealth has increased in favour of the top 10 per cent, rising from 57 to 60 per cent of total wealth. Instead, the middle 40% and the bottom 50 have seen declines, the latter from 4% to 3%. The top 1% owners of household wealth (not shown in the figure) went from 22.6% to 25.0% of the total in the same period¹.

In general, the wealth of the rich is growing faster than that of the middle and bottom classes in Europe and globally. Wealth is concentrating faster than ever, driven by booming equity markets and massive capital investments in AI infrastructure. The world’s roughly 3,110 billionaires now hold over $20 trillion in wealth, expanding it at a rate three times faster than the historical five-year average. The collective wealth of billionaires last year surged by $2.5 trillion, almost equivalent to the total wealth held by the bottom half of humanity – 4.1 billion people².

It is essential to understand the composition of revenue from different taxes, as shown for the EU in 2022.

Revenue from Taxes in the EU:

Source: Oxfam, Eurostat. EU Data on Taxation Trends.

Taxes on ordinary Europeans – consumption and labour taxes – bring in 77.9 per cent of the total revenue. This is 13 times the revenue from taxes on capital stock (5.8%), which are paid mainly by the super-rich, and five times the revenue from taxes on capital income (16.2%). When it comes to EU taxes and revenues, the ordinary Europeans do the heavy lifting.

And income taxation has been evolving in favour of the rich. Oxfam’s analysis shows that the richest individuals and biggest companies have been paying less in taxes. Between 2000 and 2023:

The top personal income tax rate on the EU’s richest fell from 44.8 to 37.9 per cent.
The top tax rate paid by the EU’s largest corporations collapsed from 32.1 to 21.2 per cent.

In contrast, taxes on ordinary people have risen. Between 2010 and 2022:

The tax rate on labour in the EU increased, from 33.3 to 34.8 per cent.
The tax rate on consumption rose from 17.7 to 18.7 per cent."³

We are told again and again that there is not enough money to improve the lives of ordinary people or fight the climate crisis. Yet, the facts tell a different story. The ultra-wealthy hoard more than they can spend while dodging taxes, and the rest of us shoulder most of the tax burden while trying to make ends meet. A European wealth tax is not only urgent, it’s fair³.

A question that begs an answer is, 'How did the rich achieve such growth in wealth and income?' There are numerous factors, but one of the most important is that they gained political power.

In the US, this was greatly facilitated by the creation of political action committees (PACs) and Super PACs, which allow contributions to election campaigns for federal candidates. They are strictly prohibited from donating directly to or coordinating with candidate campaigns. PACs can, of course, orient their campaigns to that of the candidate without any direct communication. For Super PACs, there is no limit to the amount of contributions and expenditures. While Super PACs must disclose the names of their donors, a donor can legally be a non-disclosing non-profit, shell company, or limited liability company (LLC).

This allows the true, underlying individual or corporate source of the money to be legally shielded from the public. Also, because super PACs operate on set filing schedules, money can sometimes be raised and spent right before an election (such as in the final weeks of a primary) without the donor's identity being publicly revealed until after the election. Over $5 billion was contributed to Super PACs in 2024.

One must remember that wealth buys influence in many forms, such as promising a future favour to a person or politician. "Scratch my back, and I'll scratch yours." The favours do not have to be explicit; it is understood. Money also buys the best services. If I spend heavily on tax consulting, I expect to use the best loopholes and advantages in the tax system in America or Europe. In the US, the 400 richest families pay less, 30% as opposed to 36%, the average tax level. This tax system is regressive at the highest level.

The rich are also more likely to hold political office than the average person. One estimate is that the probability of a billionaire holding public office is 4000 times greater than that of the average person. Gaining political power allows the rich to pass legislation and other projects in their favour.

In addition, the concept of meritocracy is misused to justify high inequality. It goes like this: those succeeding in the system are well-to-do and thus meritocratic (they tell themselves). Those less successful are less meritorious, and finally, the lower class and people experiencing poverty are without merit. Certainly, there can be exceptions, but this is the general rule. It is your fault if you are not well-to-do.

Against these strengths of the rich, there is the dire situation of multiple crises: international wars, the accompanying need for greater military expenditure, disregard for a rules-based system, a decline in democracy, global problems of food shortages and poverty, and the climate change crisis. Nations need new revenue to meet these extraordinary problems, so some of the wealthy may pitch in. The takeaways from the latest EU report on the subject are summarised:

"Wealth-related taxes can play a greater role in addressing high and rising wealth inequality in the EU;
In principle, wealth-related taxes may dampen savings, investment, or entrepreneurial initiative; however, the empirical evidence reviewed suggests that such efforts are generally modest.
The comprehensive taxation of returns to capital through well-functioning capital income and capital gains taxes, combined with robust inheritance and gift taxation, could form the backbone of wealth taxation;
Tax designs that limit exceptions, focus on high wealth or large transfer segments, and align valuation and anti-avoidance rules with other parts of the tax systems are in a better place to deliver meaningful revenues with fewer distortions;
Institutional and international dimensions are critical. Centralised tax design, high-quality registers, extensive third-party reporting, robust enforcement, specialist HNWI (high net worth individual) units, and continued strengthening of automatic exchange of information are necessary conditions for effective wealth taxation.
Political feasibility cannot be taken for granted. Any move to reinforce wealth-related taxation must be accompanied by transparent communication on who is affected, how revenues will be used, and how the measures will fit into a broader strategy for fairness in taxation"¹.

However, presently, no EU-wide wealth tax is being proposed. The EU is studying where it is easier and more efficient to tax capital rather than proposing a single pan-European wealth tax. The authors of the recent study explicitly state that there is no single model for all countries, and they don't propose one.

My impression is that the rich may have won the first round. However, as the situation of inequity becomes better known and the need for increased state revenues becomes more pressing, the second round could result in higher taxation on capital across the EU.